This year alone more than 50 small restaurants, pubs and bars have been sued by the U.S. royalty collectors agency BMI for playing (live) music without a license. Many more received friendly visits from BMI lawyers urging them to pay their copyright dues, or else. This backward situation does not only affect the owners of these establishments, artists are losing gigs as well because of these public performance license shakedowns.

A very close personal friend of mine owns a curry restaurant. A few months ago “John”, who prefers to remain anonymous, called me to catch up on life, but mostly to complain about the cost of coconut milk.

With the falling value of the dollar, the cost of imported Thai coconut milk has gone up over 400%. Restaurants don’t have a large profit margin to begin with and because of this increase in cost, John was running his restaurant on a dangerously tiny profit margin.

Factor in the ailing US economy and John was barely managing to keep his business afloat. I was happy to lend him a sympathetic, if somewhat distracted, ear. Then he mentioned a female lawyer from BMI had stopped by during the previous week’s lunch hour.

When a lawyer from BMI stops by a local neighborhood business, it’s typically not to buy something. True to form, the BMI lawyer in this story wasn’t there to support a local business. She was there for a public performance license shakedown.

BMI is a collective rights organization (CRO). A CRO collects royalties and then distributes them back to copyright owners. This is conventionally thought of as the most effective way to collect royalties and it likely is – imagine if every single music label was in charge of collecting royalties for its artists!

Royalties are an enormously important source of revenue for copyright owners. Music copyright owners in particular. When an artist gets a song played on the radio, royalties are collected and paid out. But in recent years, BMI and ASCAP (another CRO) have increasingly turned to a more obscure way to collect royalties – the public performance license.

The license is exactly what it sounds like – a license that grants the right to perform the copyrighted work of another to the public. Most people would think this only applies to live music venues with lots of different bands playing each week. But BMI and ASCAP are now actively applying this license to small, local, neighborhood businesses that decide to have a little live music for the benefit of their customers.

This is completely within BMI and ASCAP’s legal rights. But just because they have the right to do it, it does not mean they should. As my friend John put it:

“At the restaurant, we wanted to support local artists and decided to start having live music on Friday nights. It was a big success. Our customers enjoyed the music and the band was happy to have a steady gig. Several months later a female lawyer came into our restaurant during lunch and demanded we buy a public performance license from BMI. She wanted $3000!”

“Even though we only played original music, she said we should buy the license anyway. Apparently, even if the band members use something as minor as a Led Zeppelin riff while they tune-up their instruments – that’s a violation.”

John’s experience illustrates exactly why BMI’s heavy-handed bullying can have a negative impact on the future of music. It wasn’t a “let’s work together” scenario. BMI didn’t offer John any alternatives – just pay up – or else. They wanted John to get a license simply because there was a slight chance of a future violation!

The purpose of copyright law is “to promote the progress of science and useful arts.” Copyright is the financial incentive that drives creative innovation. When properly administered, copyright can be a powerful tool for fostering greater creativity. However, BMI’s public performance license bullying in this situation resulted in the exact opposite – the progress of music was suffocated. John eloquently stated the result of BMI’s threat:

“I said the hell with it! We only have music on Friday nights. It’s not worth $3000. How is a neighborhood restaurant running on a razor-thin margin in this economy supposed to afford an extra $3000? So I cancelled the band. Net result? Our customers suffered, local music suffered. A complete lose-lose situation.”

The bottom line to BMI and other collective rights organizations? Your customers are not your enemies. Promoting live music is good for BMI and the artists they collect royalties for. Working together with local businesses rather than trying to bully and intimidate them will leave all parties better off.

As for John’s restaurant, it really is a shame. The coconut curry still tastes as awesome as ever. But the lively dueling banjos in the background are gone for good.

The above is a guest post by Allan Gregory. Allan is a bar-certified lawyer in the state of Florida, with a special interest in Internet Law.